What's Plan B for Microsoft?

The web is awash with speculation as to what Microsoft will try and go after now that it has been stymied in its attempt to buy Yahoo.

Computerworld comes up with three eligible bachelors - AOL, LinkedIn and ValueClick.

Facebook gets numerous mentions around the web and Microsoft paid US$240 million last year for a tiny sliver of the social networking website, which valued it at US$15 billion.

But none of those options would appear to be the answer to Microsoft's problem, which is that it hasn't been able to build a credible and viable online presence and a sustainable business in the search advertising market.

AOL has already been through the wringer of one botched mega-merger and has been sidelined by Google and Yahoo. LinkedIn is a great, seemingly profitable service, but it's not broad enough in its scope.

Microsoft could benefit greatly from integrating its productivity tools into LinkedIn and effectively webifying Office and Outlook in a compelling way to rival Google Apps. But that's only one part of the puzzle for a company with Microsoft's ambition.

Then we have a possible acquisition of or partnership with Rupert Murdoch's Newscorp. This would put Microsoft in the MySpace camp and give it access to a stack of content from the Murdoch culture empire. But it just sounds wrong to me. Murdoch and Microsoft? Any cool appeal MySpace has would be drained out by the MSN gang.

There's the potential for a deal with Google, though it's the most likely to get knocked back by regulators and the Google-Microsoft culture would be the most incompatible. I've been to Redmond and Mountain View. They're like chalk and cheese.

But as the New York Times points out, Google sees Microsoft as its biggest threat, which is why it used its considerable weigh and wealth to throw a spanner in the works of the deal.

The cold war between Microsoft and Google isn't coming to an end any time soon.

Microsoft could continue its track record of buying smaller companies to plug holes in its product line-up, sucking intellectual property into the company and churning it out in the Microsoft/Windows/Vista/Live mold.

But that approach hasn't been overly successful at Microsoft of late, hence the bid for Yahoo.

Nope, it looks like Microsoft is just going to have to do what Silicon Valley is good at - building better widgets than everyone else. With all that cash at its disposal, all that brain power on the books, you'd think Microsoft might be able to come up with something to rival Google, if everyone not working on Windows 7 and the Blu-ray-toting Xbox 360 put their minds to it.

It might take a few years to get there, but Microsoft can milk its Windows monopoly for a few years, keeping shareholders happy while it constructs something that might give it the dominance on the web it craves.

Having said all of that, there's another scenario - Microsoft ends up after all buying Yahoo. It's happened before. Oracle took its offer for rival BEA off the table before coming to different terms and sealing a deal for the acquisition.

Yahoo's Jerry Yang has either made the biggest mistake of his life or saved Yahoo from mega-merger disaster by knocking back Steve Ballmer's offer.

But judging by the response from Yahoo shareholders to that move - a 19 per cent drop in Yahoo's share price, there's strong appetite still for a sale to Microsoft.

What's best for us down here? I barely use Yahoo, except to look at Yahoo News, AOL doesn't even register in our part of the world. MySpace has lost out here to Facebook. LinkedIn is popular but very niche. I can't really think of a dream scenario that would suit us, except funnily enough, Google and Microsoft, the two dominant web players in this part of the world.

What do you think Microsoft should do? What's the dream combination of web services for you?